Think Tank: Wisconsin Has Country’s Best Funded Pension System

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The think tank State Budget Solutions has released a report which names Wisconsin’s pension system the most well funded in the nation.

It’s the second year in a row the think tank has given Wisconsin that title.

From the Wisconsin Reporter:

The Badger State once again has the most well-funded public pension system in the nation, according to a study released this week by State Budget Solutions, a fiscally conservative think tank based in Virginia.

The Wisconsin Retirement System also has the lowest percentage of unfunded liability as it pertains to the 2013 gross state product and the second lowest cost per capita, only behind Tennessee, the report says.

But don’t go ordering balloons, streamers and other party favors just yet. You’re going to need the extra cash.

Wisconsin’s estimated funding ratio of 67 percent is still below the 80 percent benchmark that’s considered healthy by industry standards, and each resident in the state would have to pay $6,720 to erase the pension system’s $38.6 billion in unfunded liabilities, the study says.

The SBS report lists Wisconsin’s funding ratio at 67 percent. But the state says its system is 99.9 percent funded – and it didn’t pull that number out of thin air; the number originated from a 2013 Morningstar analysis.

What accounts for the stark difference?

The SBS report measured liabilities using different methods that the state, including a much lower assumed rate of return on pension investments. More from the Wisconsin Reporter:

For its survey, State Budget Solutions used a discount rate of 2.73 percent, the approximate equivalent to the yield of a 15-year U.S. Treasury bond. The state uses a discount rate of 7.2 percent for active participants prior to their retirement and 5 percent for retired members and for active and inactive participants following retirement, according to the Department of Employee Trust Funds.

Although Wisconsin’s discount rates are among the lowest in the country, Luppino-Esposito doesn’t think they are low enough.

“We base our numbers on a discount rate that carries much less risk,” Luppino-Esposito said. “We would rather the pension plan make safer investments and ensure stability for pensioners and state residents who will lose out on vital services if the pension liability becomes too large.”

To validate his organization’s methods, Luppino-Esposito pointed to a Moody’s Investor Services report released in September that shows the unfunded liabilities of the 25 largest state pension plans — including Wisconsin’s — tripled to nearly $2 trillion between 2004 and 2012, despite coming close to meeting their “lofty investment return goals.”

“The most recent Moody’s report shows us that even if investment targets are met, high discount rates will cause the funds to come up short by trillions of dollars,” Luppino-Esposito says in his study.

Read the SBS report here.

Read Morningstar’s 2013 report here.

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